ACE European Group

UMALEnvironmental Liability

May 2009

Tom HillierSenior Underwriter – UK & Ireland

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Content

Environmental Market Focus Operational Pollution Risk Traditional Insurance Solutions ACE Environmental Solutions Considerations

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Environmental Market Focus (1)

UK industrial history Legacy of contaminated land Significant unknown pollution conditions

Transactional business – key market driver Property Development M&A / Corporate Investment Commercial Lending Pension / Investment Funds

Typical ‘EIL’ Solutions Long-term policies Cover for legacy liabilities

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Environmental Market Focus (2)

Issues Created High premium costs Complex wordings Difficult placement process

The Result Limited access for the client majority Slow market growth Lack of innovation in products and distribution Environmental insurance not on the broker/client radar

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What’s driving our focus on this?

Public awareness & media – Reputation Financiers Corporate Governance UK Legislation

Part IIA of Environmental Protection Act Water Resources Act

European Legislation Numerous EU Directives – waste, water, hazardous

substances – and the most important: EU Environmental Liability Directive (ELD)

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Am I exposed to environmental risk?

Environmental risk is often associated with: Contaminated land and our industrial past ‘Heavy’ industries like chemicals, metals & waste Large-scale disasters

In reality, few companies have no such risk: If you own or operate or buy and sell property If you redevelop ‘brownfield’ land If you use or produce potentially contaminative materials If you create waste (solid, liquid or gaseous)

…then you have an environmental risk

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Operational Pollution Risk

EU Environmental Liability Directive (ELD) Transposed into English law through new regime -

Environmental Damage (Prevention and Remediation) March 2009 – Wales and Scotland to follow soon

Prospective only – operational risks Reinforces ‘polluter pays principle’ Damage to land and water Damage to natural habitats & protected species

(Biodiversity) Main implications

Strict Liability for ‘regulated’ industries Imminent threat & preventative measures Reporting requirement for operators Reporting opportunity for ‘interest groups’ Complementary & Compensatory Remediation

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What if I’m not a ‘regulated’ business?

Focus is on significant environmental damage Only ‘regulated trades will be strictly liable, but

these regulations do not introduce environmental liability – it already exists!

Existing environmental legislation: is wide-reaching and well established; covers impacts to land, water, air and natural resources

already; is more stringent in many areas than the new regs; includes both historical and operational pollution

impacts; can hold any type of business liable can already impose significant clean-up costs

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So what are the consequences?

Civil/tort liabilities Claims for damages from third parties Bodily injury & property damage Nuisance

….can result in compensation payments & legal costs

Regulatory action Government bodies have enforcement powers Human health & Local Authorities Land, air and water - Environment Agency

….can lead to significant clean-up costs and associated expenses

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Am I not already insured against pollution?

ABI Pollution exclusion early 1990s Property Insurance

No cover for historical pollution Land is not usually ‘insured property’ No contaminated soils in debris removal Possible ‘buy back’ of land cover:

Still no cover if gradual Still requires physical loss – no DISCOVERY

Liability Insurance No cover for historical pollution No cover for gradual pollution No cover for damage to own property

Expressly excluded under standard liability forms. Vast majority of pollution incidents will result in clean-

up of the company’s own site No cover for Environmental Liability Directive No cover for clean-up costs imposed by regulators

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Traditional Insurance Solutions

Bartoline vs. RSA & Heaths Background:

Manufacture/packaging of solvents and adhesives

Significant fire at UK site Fire-fighting foam washed solvents and

adhesives into adjacent watercourse EA responded undertaking emergency

remediation works on the river Invoice issued to Bartoline, plus notice served

for onsite works – total cost c. £700k.

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Traditional Insurance Solutions

The Outcome: Bartoline claimed under their PL

policy written by RSA and placed by Heaths

RSA disputed claim so were sued for breach of contract

The court ruled in favour of RSA - liability to repay expenses incurred by the Environment Agency and liability to pay damages in tort are “quite different animals.”

Appeal was due to be heard in October 2007, but case settled out of court shortly before.

Precedent set – S&A pollution, but still not insured

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Can these risks be insured currently?

Many insurers have attempted to amend public liability policies to include ‘Bartoline’ cover, but:

Still no cover for clean-up of own premises; Still no cover for gradual pollution; Still fails to meet liabilities arising under the new

Environmental Damage Regulations:

flora and fauna exclusion clean-up coverage falls well short of

Complimentary and Compensatory Remediation requirements

Liability underwriters lack understanding and experience of environmental risks

Uncertainty therefore prevails……

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ACE Environmental Solutions

Specialist Policies – Key Benefits Pollution conditions – no dispute between what is S&A or

gradual Based on ‘discovery’ of pollution – no physical loss

requirement Site-based policies or contractor coverage Third-party ‘tort’ liabilities for S&A and gradual pollution First-party regulatory clean-up for S&A and gradual pollution Can include first-party business interruption – loss of profit,

loss of rent. Multi-year policies available Policies designed to respond to claims under ELD

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Can these risks be insured currently?

 GL or PL coverag

e

ELD scope

Available cover

Accidental pollution   Gradual pollution    

Legal liabilityFinancial,

material losses /Bodily injuries

 

Imposed remediation costs

IncludingPrimary

ComplementaryCompensatoryRemediation

 

Protected species and

habitats 

Water / land Natural

resources 

Prevention costs Clean up costs on your own

property

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General Client Considerations

Existing Property & Casualty pollution coverage is inadequate

Client does not need to handle chemicals or waste to have exposure

Disclosure and Financial Reporting requirements expanding

Contract conditions are starting to address environmental liabilities

Awareness of Financiers Future regulations are uncertain, but they WILL

be more stringent

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Questions